Affluent Americans May Be Underestimating Their Needs in Retirement Says New Schwab Survey

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"The bottom line for everyone is that healthcare costs need to be carefully factored into retirement plans."

SAN FRANCISCO--(BUSINESS WIRE)--Despite a general sense of confidence in their financial readiness for
retirement, affluent Americans might be overlooking critical tenets of
retirement planning, according to a new Schwab survey of approximately
1,800 investors across nine major U.S. markets. More than eight in 10
(84 percent) investors say they have a retirement plan in place, and 80
percent of these respondents say they are confident about their
financial readiness for retirement.

However, when it comes to estimating how much money they’ll need once
they actually retire, respondents say they’ll need on average around
$66,000 in income annually, far lower than their current average income
that is approximately $115,000.

“Everyone’s retirement saving and investing plan is going to be unique,
but each plan needs to start with a realistic assessment of personal
situation and goals,” says Carrie
Schwab-Pomerantz, Charles Schwab & Co., Inc. senior vice president,
CFP®. “In many cases, we tell clients to assume they’ll need roughly the
same annual income in retirement as they had beforehand unless they
anticipate a significant lifestyle change, and to take into account
longevity risk when planning how much money they might need.”

The survey also finds that, on average, respondents plan to work until
they are 67 years old and expect to live to the age of 86, suggesting
that they anticipate living off their retirement savings for less than
20 years. When asked directly how many years they anticipate living off
of their savings in retirement, people say 21 years, on average.

Retirement Confidence High

Although there appears to be room for improvement in how realistically
people are planning for their financial needs in retirement, the story
isn’t all bad. Thirty-three percent of people feel they are completely
prepared for retirement, and another 51 percent feel at least moderately
prepared.

Schwab-Pomerantz notes that even people who have a financial plan in
place would be well-served to give it a second look to ensure they are
on track to meet their retirement goals. “Especially for those looking
to catch up on savings, we recommend maximizing contributions in a
401(k) at least up to the employer match, considering other
tax-advantaged retirement accounts such as an IRA, and finding ways to
automate savings,” she says. “We’re also having retirement planning
discussions with an increasing number of clients who want to be more
engaged in investing and how their money is managed.”

People’s sense of retirement readiness seems to provide flexibility in
terms of whether or not they will continue working to drive additional
income once they retire. Thirty-nine percent of people surveyed say they
do not plan to work at all in retirement, and 46 percent say they might
work part-time even though they expect to have enough money to live
without working. Just 10 percent think they will have to work at least
part-time to make ends meet.

Budget Busting Worries

When asked how their confidence level has changed since last year, 23
percent feel more optimistic about being prepared for retirement, while
24 percent are less optimistic, and roughly half (52 percent) haven’t
changed their perspective. Survey respondents did express some financial
worries when it comes to retirement planning. More than half (53
percent) say their primary concern is incurring unexpected expenses in
retirement, such as medical or healthcare costs.

“Even with Medicare benefits, a 65-year-old couple could need nearly
$400,000 to cover out-of-pocket healthcare costs during retirement,
according to research by the Employee Benefit Research Institute*, and
it’s widely accepted that those costs could rise significantly in the
future,” notes Schwab-Pomerantz. “The bottom line for everyone is that
healthcare costs need to be carefully factored into retirement plans.”

Regional highlights from the survey include:

Nearly half (47 percent) of Los Angeles residents surveyed say they
don’t plan to work at all in their retirement years, compared to only
30 percent of Washington DC residents.

More than half (52 percent) of Philadelphia residents say they’re
currently working with a professional advisor on their retirement
planning, compared to 40 percent of Bostonians.

Washington, D.C. residents are most likely to relocate in retirement
(36 percent), while San Franciscans are least likely to move once they
retire (17 percent).

Retirement Planning Resources at Schwab

Schwab makes a range of services and tools available for investors
seeking help with retirement planning, including:

The Local Market study, conducted for Charles Schwab by Koski Research,
polled 1811 investors between the ages of 25 and 80 with a minimum of
$250,000 in investable assets and retirement funds and was conducted
using an online panel of general investors. The survey was conducted
between January 14 and January 25, 2013. Results of any sample are
subject to sampling variation. The magnitude of the variation is
measurable and is affected by the number of interviews and the level of
the percentages expressing the results.The study’s margin of
error is +/- 2.2 percent.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of
financial services, with more than 300 offices and 8.8 million active
brokerage accounts, 1.6 million corporate retirement plan participants,
874,000 banking accounts, and $2.01 trillion in client assets as of
January 31, 2013. The Company was ranked ‘Highest in Investor
Satisfaction With Self-Directed Services’ in the 2012 US Self-Directed
Investor Satisfaction StudySM from J.D. Power and Associates.
Through its operating subsidiaries, the Company provides a full range of
securities brokerage, banking, money management and financial advisory
services to individual investors and independent investment advisors.
Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC,
www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; compliance and trade monitoring solutions; referrals to
independent fee-based investment advisors; and custodial, operational
and trading support for independent, fee-based investment advisors
through Schwab Advisor Services. Its banking subsidiary, Charles Schwab
Bank (member FDIC and an Equal Housing Lender), provides banking and
lending services and products. More information is available at www.schwab.com
and www.aboutschwab.com.
(0313-1869)

**The consultation is complimentary although the implementation of any
recommendations made during the consultation may result in trade
commissions or other fees, charges, or expenses. During the
consultation, specific advice and recommendations are limited to assets
held at Schwab by clients with an existing Schwab retail brokerage
account. Examples may be provided of the advice and recommendations that
might be offered if outside assets were transferred to Schwab, however
such information is for educational purposes only.